Canadian stocks have both a curse and a blessing. Here is what I mean.
The TSX is a significantly smaller stock market than others. As a result, many Canadian companies don’t get the recognition they deserve on a global scale. Canadian stocks often trade at a large discount to U.S. peers, despite even superior fundamentals. That is the curse.
The blessing is that Canadian investors get the upper hand. Often, you can find high-quality growth stocks at a fraction of the valuations that they would trade for in the U.S. Canadian investors get a chance to buy these stocks before they gain notoriety from international investors.
If you are looking for stocks that could one day gain international attention, here are three that are under the radar and relatively inexpensive today.
goeasy: A growth and income stock
goeasy (TSX: GSY) has delivered exceptional returns for many years. While the stock is down 37% from its peak in 2021, it is still up 161% over the past five years and 1,142% in the past 10 years. If you add in dividends, its stock has delivered 227% in the past five years and 1,485% in the past 10 years.
Canada’s big banks have largely retreated from the sub-prime lending market. As a result, goeasy has been able to take ample market share across Canada. Over time, its loans have been improving in quality and that translates into more consistent profitability.
goeasy stock trades with a price-to-earnings (P/E) ratio of 8.5. That is below its 10-year average of 10.4. For a stock growing at nearly twice the rate of its valuation, this stock looks attractive. Not to forget, it also pays a nice 2.9% dividend yield.
Trisura: A small but fast-growing insurer
Speaking about growth stocks in boring industries, Trisura Group (TSX: TSU) should be on the list. Trisura owns specialty surety, corporate, and fronting insurance businesses in Canada and the U.S.
With a market cap of $1.5 billion, it is a very small player in a huge industry. However, it has been delivering exceptional metrics.
It has a very high return-on-equity (ROE) of about 20% and a great combined ratio (a measurement that divides claim losses and expenses by premiums collected) of 83%. This simply means that the company has been very profitable in its underwriting.
Trisura’s stock is down in 2023 due to the write-off and wind down of an insurance program in the United States. While this is near-term headwind, the company continues to grow earnings per share by a high teens/low-20% rate. The stock is trading for 14 times earnings, which is almost half its three-year valuation average.
Colliers: A good long-term compounder stock
Colliers International Group (TSX: CIGI) is another extraordinary company trading at a fair price. It is well known for its commercial real estate brokerage business. That business has struggled as real estate volumes have slowed from rising interest rates.
Fortunately, the company has diversified in recent years to provide recurring services in property management, project management, engineering, design, and even asset management. In fact, close to 60% of its revenues come from these Steady Eddie businesses.
Colliers has delivered very strong long-term returns. Over the past 10 years, its stock has earned a +20% compounded annual rate of return. The company has grown by acquisition. A recession could create opportunities to acquire some attractive bargains.
While you wait for real estate transactions to recover, you can pick this stock up for only 14 times earnings. That appears to be an attractive deal, given Colliers’s longer-term growth track record.
